India's GDP can grow to US$ 1.1 trillion

September 10, 2001

Dr William Lewis, director of the McKinsey Global Institute is very bullish on India's long-term economic growth. He is of the view that "India's GDP could grow to as much as US$ 1100 billion and India would be among the fastest growing economies in the world." The on-going reform program would help India achieve a transformation in a decade's time. He was speaking at a function in New Delhi on September 6th, 2001 where McKinsey India's report India: The growth imperative - understanding the barriers to rapid growth and employment creation - was released by Indian Prime Minister Atal Behari Vajpayee.

The Indian arm of the USA-headquartered consultancy MNC inferred that India should achieve a 10 per cent growth rate of gross domestic product a year. "This rate is not only possible, but also imperative if India is to avoid an unemployment crisis".

Covering 13 sectors that account for 26 per cent of GDP and 24 per cent of employment, the McKinsey document noted poignantly that "By growing at 10 per cent a year over the next 10 years India will be able to create 75 million jobs outside the agriculture sector which is adequate to absorb the growing workforce and contain unemployment at current levels".

Much would depend on the role of the Central and the State governments in achieving a breakthrough in productivity, the document states. The Centre has to take the main initiative while state governments will have to lend the essential role as implementation of one-third of the reforms rests with the state governments. McKinsey India was commissioned by the Government of India in order to have an analytical basis and causation of downslide of India's economy and be advised on the remedial path. The Indian subsidiary of the US consultancy major took... a bottom-up approach.

McKinsey exercise, undertaken over a period of 15 months, identified three main barriers in economic growth: product market barriers which distort the prices and quantities of goods and services produced, land market barriers manipulating land prices and government ownership. "These three barriers constrain GDP growth by 4 percentage points", the report observed. Productivity can be boosted by dismantling these barriers in modern sectors like construction, retail, food processing, telecom and power as the hiatus between current productivity and potential productivity is the most yawning in those sectors. The consultancy report opined that India could jack up its investment rate from the current 24.5 per cent of GDP to 30 per cent of GDP too.

Among those present at the function were Shirish Sankhe, partner, McKinsey Company and Ranjit Pandit, McKinsey India managing director. Sankhe, while summarising the findings, said: "What holds India back today is not the scarcity of resources, either human or capital, but barriers that prevent these resources from being utilised efficiently"